BZW fined pounds 100,000 for rule breach in Pace float

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The Independent Online
BARCLAYS DE Zoete Wedd, the former broking arm of Barclays Bank, was yesterday fined pounds 100,000 and reprimanded by the Financial Services Authority after inadvertently breaching the rules during the flotation of Pace, the electronics group, three years ago.

Amir Eilon, the banker who handled the share sale, was also fined pounds 10,000 and reprimanded. BZW and Mr Eilon are to pay the FSA's costs of pounds 70,000.

The breach that was the subject of the action relates to rule 5-47 of the Securities and Futures Association, the City regulator. This governs so-called stabilisation notices, which allow brokers placing shares to intervene in the market in limited circumstances to prevent the price of a new issue collapsing.

It is understood that Mr Eilon sold some Pace shares held by BZW in its overallotment account in an attempt to stop the share price rising too far in the mistaken belief that this was allowed under stabilisation rules.

In fact, the stabilisation rules exist mainly to allow a firm to buy shares in support of an issue and only allow the firm to sell shares that it had previously bought in order to support the price. In any case, normal City practice is to overallot shares - effectively going short - with a view to buying back shares should there be insufficient demand in the aftermarket.

In this particular case, it is understood that as soon as Mr Eilon realised this was not allowed and a breach of the rules had occurred, further sales were stopped and the matter reported to the SFA. The profits on the sale were paid to charity.

BZW was sold last year to Credit Suisse First Boston. Mr Eilon, who cooperated fully with the inquiry, left the firm in March for reasons unconnected.

The SFA said that even though BZW and Mr Eilon acted swiftly to make good their mistake, it was felt that the breach of the stabilisation regime was a serious matter and that BZW was a well-regarded firm which should be seen to set an example to others. Officials pointed out that the stabilisation procedure is, in effect, an exemption to the insider-dealing provisions of the Criminal Justice Act.

Barclays said that although the firm continued to handle the matter even after BZW was sold on, since it related to events which took place while the firm was under Barclays' ownership, as far as it was concerned the matter was closed. Mr Eilon was unavailable to comment.